Ensuring Your Business's Financial Health: Navigating the Employee Retention Credit Withdrawal Process
Introduction: In a recent announcement, the Internal Revenue Service (IRS) has urged small business owners who claimed the Employee Retention Credit (ERC) to review their eligibility and promptly withdraw any unqualified applications.
Employee Retention Credit (ERC)
The ERC, a lucrative tax credit aimed at encouraging employee retention for businesses impacted by COVID-19, has faced challenges due to unscrupulous practices by ERC mills, online companies that facilitated questionable claims for unsuspecting business owners.
Understanding the Employee Retention Credit: The ERC is a refundable tax credit designed to support businesses and tax-exempt organizations affected by the pandemic. Qualified employers can claim up to $26,000 per worker on payroll between March 12, 2020, and December 31, 2021. Despite its benefits, the prevalence of ERC mills led the IRS to pause processing new applications, emphasizing the importance of businesses reviewing their eligibility.
Challenges Posed by ERC Mills: ERC mills, often inexperienced online companies, took advantage of unsuspecting business owners by filing claims on their behalf, even if they were ineligible. The IRS, in collaboration with the Justice Department, is actively working to deter fraud and hold promoters of fraudulent claims accountable.
How to Withdraw an ERC Claim: The IRS has outlined specific steps for businesses to withdraw their ERC claims, depending on their return status:
Claim Withdrawal Request: For taxpayers who filed the credit but haven't received a refund or are not under audit, they can submit a claim withdrawal request by signing and dating their original return copy with the word "withdrawn" and fax it to the IRS.
Response to Audit: If a business is under audit, they can prepare a claim withdrawal request and send it to their IRS auditor in response to the audit notification.
Refund Not Cashed: Businesses that received a refund check but haven't cashed it must send a package, including the claim withdrawal request, voided refund check, a written explanation, and copies of their ERC return, to the IRS.
Important Considerations:
Taxpayers must create separate withdrawal requests for each withdrawal period.
Small businesses can withdraw claims for ineligible quarters while still claiming the credit for eligible quarters.
Businesses that withdraw their claim before payment processing are not subject to penalties or interest charges.
Conclusion: In the face of challenges posed by ERC mills, it is crucial for small business owners to proactively assess their ERC eligibility and, if necessary, withdraw their claims following the IRS guidelines. Seeking assistance from trusted tax professionals, like NC&F, can ensure businesses navigate this process effectively, avoid penalties, and maintain their financial integrity. Stay informed, be vigilant, and protect your business's financial health.